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US manufacturing output rises solidly despite semiconductor shortage




FILE PHOTO: An employee works at the Kirsh Foundry in Beaver Dam, Wisconsin, U.S. April 12, 2018. Photo taken April 12, 2018. REUTERS / Timothy Aeppel

WASHINGTON (Reuters) – Production at U.S. factories rose more than expected in January, even as a semiconductor shortage weighed on motor vehicle production, indicating the resilience of the recovery in the manufacturing sector.

Manufacturing output rose 1.0% last month after gaining 0.9% in December, the Federal Reserve said on Wednesday. It was the ninth consecutive monthly advance in factory production.

Economists polled by Reuters were forecasting a 0.7% increase in manufacturing output in January. The manufacturing sector, which accounts for 11.9% of the U.S. economy, grew as the pandemic left Americans rooted in their homes, shifting demand towards household goods from services like air travel and lodging in the hotel.

Manufacturing dynamics could slow in the spring as vaccine distribution reaches large swathes of the population, helping to slow the spread of the virus. This could trigger pent-up demand for travel.

Nonetheless, production at factories will be supported by low customer inventories, as well as meager inventories at manufacturers. A survey conducted this month showed a drop in manufacturing sentiment in January.

The Fed report showed that production of motor vehicles and parts fell 0.7% in January. Production in auto factories has been hampered by a shortage of semiconductors. Production of motor vehicles fell 0.2% in December. Excluding autos, manufacturing output increased 1.0%.

Strong manufacturing output combined with a 2.3% jump in the mining sector pushed industrial production up 0.9% in January. This follows a 1.3% increase in December. Industrial production remains below its pre-pandemic level. The output of utilities fell 1.2%.

The capacity utilization of the manufacturing sector, a measure of how well businesses are making full use of their resources, increased 0.7 percentage points to 74.6% in January. Overall capacity use in the industrial sector increased 0.7 percentage points to 75.6%. It is 4.0 percentage points below its 1972-2019 average.

Fed officials tend to look at measures of capacity utilization to indicate how sluggish the economy remains to what extent growth has room before it turns inflationary.

Reporting by Lucia Mutikani; Edited by Chizu Nomiyama

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